China changes its tune on Hong Kong

Macquarie Group has cautioned against investing in Hong Kong companies which are exposed to the political winds of mainland China, following an official warning that the city's administrative "autonomy" is a privilege that can be removed at any time.

Hong Kong has retained its status as the financial hub of Asia since its handover from Great Britain in 1997, when Chinese leaders committed to retain a system of "one country two systems" for 50 years.

While Hong Kong enjoys 'one country, two systems' status, nothing, it seems, is set in stone. Photo: John Schauble

The city is home to more than 80,000 Australians while 550 Australian businesses have a "major presence" there, according to the Department of Foreign Affairs and Trade, but many are growing uneasy at the growing reach of Beijing.

On Tuesday, however, China's State Council released an unprecedented White Paper that said Hong Kong is just "one of the local administrative regions" and warns against "outside forces" using the city to interfere in China's domestic affairs.

Revellers in Lan Kwai Fong in central Hong Kong celebrate in the streets the handover of sovereignty to China at the stroke of midnight July 1 in 1997. Photo: Reuters

"The high degree of autonomy enjoyed by Hong Kong is subject to the central government's authorisation," says the paper.

Macquarie Bank analyst David Ng said the 22,000 word document was "more serious" than a mere warning to pro-democracy protestors.

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Rather, it carried an implied threat of economic coercion to compel political "compliance".

"It appears to us that Beijing is threatening a removal of favourable policies from HK if opinion leaders are perceived as continuing to defy central government's authority," said Mr Ng in a research note. The note advised clients to cope with a likely five year period of political and economic instability by favouring "companies that have diversified overseas".

Yesterday the Hong Kong Bar Association took the unusual step of issuing a reminder about the meaning of rule-of- law "as understood in Hong Kong and in the community of civilised nations".

The association was particularly concerned that the White Paper groups judges together with "administrators" who are required to be patriotic and uphold a "correct" which is consistent with the undefined interests of Chinese sovereignty and state security.

"Any erroneous public categorisation of judges and judicial officers as 'administrators' or official exhortation for them to carry out any political mission or task will send out the wrong message to the people of Hong Kong people on the Mainland and the wider international community that Courts here are part of the machinery of the Government and sing in unison with it," said the association.

"Irrespective of whether this is the case with the Courts elsewhere, this most definitely is NOT the case in Hong Kong."

Over the past year, confidence in Hong Kong's legal and commercial environment has deteriorated as Beijing has spelt out its own definition of "universal suffrage" and journalists have come under attack, both physically and financially.

Last month, Fairfax reported, that the global banks with the greatest retail presence in Hong Kong, HSBC and Standard Chartered, had ended a $HK28 million advertising contract with the independently-minded Apple Daily, following pressure from Beijing.

"They have a huge budget and resources to silence you," said Ed Chin, a Hong Kong financier, who signed an open letter in April saying that Hong Kong's status as a competitive financial centre was at stake.

In April a report by McKinsey Global Institute said Hong Kong was one of the world's most globally-integrated cities.

The report cited 2012 data on flows of goods, services, finance, people and data to rank Hong Kong second only to Germany and ahead of the United States and Singapore.